Infosys sees first sales fall, shares drop

Bangalore: Infosys Technologies Ltd forecast its first decline in annual revenue as outsourcing demand from overseas clients slowed in a harsh economic climate, halting growth for India’s once burgeoning IT services sector.

Shares in the country’s second-largest software services exporter dropped as much as 7.7% due to the glum outlook, which came after Infosys reported a higher-than-expected 29% jump in quarterly profit.

India’s $60 billion outsourcing sector, which provides an array of services from software coding to managing computer networks and call centres, face headwinds such as weak demand, and rising competition from global rivals such as IBM.

“Price pressure remains in Europe and the US Anyway, we were expecting a 5% lower (revenue) guidance and they are guided for 3-7% fall in dollar terms,” said K.K. Mital, head of portfolio management services, Globe Capital in New Delhi.

Infosys, the first IT firm to kick off the sector’s results, expects revenue for the year ending March 2010 to fall 3.1-6.7% to between $4.35 billion and $4.52 billion.

The forecast spells a big change in outlook for a sector once used to high growth rates, which help attract thousands of English-speaking young job seekers in the country.

India’s software services sector has also been hit by a large accounting fraud at Satyam Computer Services, once ranked as the fourth-largest IT firm.

On Monday, mid-sized Indian outsourcer Tech Mahindra won an auction for a controlling stake in Satyam and analysts expect the new combination to compete aggressively for large deals with leader Tata Consultancy Services, Infosys and other players.

Nasdaq-listed Infosys’ revenue rose 11.7% last year and it reported a year-on-year rise of more than 30% over the past few years.

“Guidance is not that impressive. It points to a cautious outlook and lack of business drivers in the bottomline,” said Kevin Trindade, an analyst at KR Choksey Shares and Securities.

By 10:50am, Infosys shares fell 5.5% and ranked as the biggest loser in Mumbai’s main benchmark index up 0.4%.

Infosys’ full year forecast assumes a 6.5% drop in prices on the back of a 3% fall in January-March.

“The deal pipeline continues to be fairly strong. The challenge is in closing them because the decision making is taking time,” chief operating officer S.D.Shibulal told reporters.

An army of English-speaking engineers and cheaper wages has driven an outsourcing boom in India, but turmoil in global markets and a recession in the United States, which accounts for more than half the sector’s revenue, have halted the scorching pace of growth.

Shares in Infosys, valued at more than $16 billion in the market, jumped 19% in January-March, outperforming a nearly 3% gain in the sector index and a nearly 1.0% rise in the main index.

Infosys said it plans to add a gross of 18,000 employees in 2009/10, compared with 28,231 a year ago, and will freeze wages to rein in costs. However, it had no plans to cut jobs, it said.

“The year would be challenging on the people front,” said board member T.V. Mohandas Pai.

The company said its cash and cash equivalents stood at Rs109.9 billion as at end March.